Morningstar DBRS Confirms Credit Ratings on All Classes of Fontainebleau Miami Beach Trust 2019-FBLU

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings of Commercial Mortgage Pass-Through Certificates, Series 2019-FBLU issued by Fontainebleau Miami Beach Trust 2019-FBLU as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-A at AA (high) (sf)
-- Class C as AA (sf)
-- Class D at A (high) (sf)
-- Class E at A (low) (sf)
-- Class F at BB (sf)
-- Class G at B (high) (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect Morningstar DBRS' continued view that the subject transaction, secured by the Fontainebleau Miami Beach, is performing well and will continue to exhibit stable credit metrics through maturity. The loan is secured by a four-diamond 1,594-key luxury resort Miami Beach, Florida. It is well located on an irreplaceable, 20-acre oceanfront parcel in Mid-Beach. The whole loan consists of $975.0 million of senior debt held in the trust and mezzanine debt that had an issuance balance of $200.0 million, which is held outside the trust. The loan is fixed-rate, interest-only (IO) through its five-year term and scheduled to mature in December 2024. There are no extension options. Between 2005 and 2019, the sponsor had invested $837.3 million in capital improvements throughout the property, with an additional $32.0 million contributed at issuance for additional room renovations, which were completed in January 2023.

At the time of the last credit rating action, Morningstar DBRS upgraded seven classes following a re-evaluation of its net cash flow (NCF) analysis in light of significant cash flow growth observed over the prior few years. According to the September 2023 STR report, the subject's occupancy, average daily rate (ADR), and revenue per available room (RevPAR) were reported at 71.1%, $418.23, and $297.51, respectively, for the trailing 12-month period down 2.8%, 7.0%, and 9.6%, respectively, from the prior year. A competitive set of nine other Miami Beach hotels saw similar declines across all metrics, indicating the Miami Beach hospitality market as a whole had regressed slightly from previous performance gains. The resulting NCF reported for YE2023 of $77.0 million represents a decline from the reported NCF of $123.4 million in YE2022 and $90.4 million in YE2021. The property's expense ratio has also increased to 76.1% from 66.1% the prior year.

Several Miami hospitality market reports reviewed by Morningstar DBRS highlighted flattened-to-declining tourism trends throughout 2023 as compared with prior years, possibly a result of rising interest rates and a heavy storm season. However, according to an April 2024 CoStar article, Miami remains the one of the strongest U.S. hospitality markets, with the highest reported occupancy, ADR, and RevPAR figures. Although previous performance improvements were tempered with the 2023 reported, Morningstar DBRS believes the property will continue to perform well given its status as one of the premier beachfront resorts in the submarket. In addition media reports indicate the loan's sponsor, Jeffrey Soffer, has secured nearly $73 million in financing to complete a new convention center on a one-acre lot adjacent to the subject site, which is expected to further boost the subject's appeal and competitive advantage.

With this review, Morningstar DBRS updated its cash flow analysis to reflect 2023 performance figures, given the loan's near-term maturity date and to test the durability of the credit ratings. Morningstar DBRS derived a NCF of $75.5 million, based on the YE2023 reported amount, and maintained an 8.0% capitalization rate, which resulted in an updated Morningstar DBRS value of $943.5 million and an implied loan-to-value ratio of 103.3% for the senior debt and 124.5% on a whole-loan basis. Morningstar DBRS also maintained qualitative adjustments totaling 4.0% to reflect the property's historical performance, high quality and premier location, and the strong local hospitality market and high barriers to entry.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

Class X-A is an IO certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428798).

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings assigned to Classes B, C, D, E, F, and G materially deviate from the credit ratings implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material variances is a lack of demonstrated sustained loan performance trends. Morningstar DBRS typically expects to observe multiple reporting periods of consistent and sustainable performance trends prior to making changes to credit ratings. While the decline in the 2023 reported NCF is notable, Morningstar DBRS believes this does not reflect a sustained negative trend in property performance, nor a trend in performance for the larger market. Morningstar DBRS continues to hold the view that the strong Miami hospitality market, the property's high quality, irreplaceable location, and continued sponsor commitment point to a high likelihood of ultimate refinanceability for the loan.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with the credit rating actions.

These are solicited credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799

-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982

-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at [email protected].